NEW INFO: Kinston Charter Academy audit prompts legislative moves

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Two North Carolina leaders say it's time for better oversight after a string of charter schools shut down amid accusations of mismanaged money.

The former North Carolina Republican Party chairman who now heads the State Board of Education and the top Democrat in the state House want tighter controls over taxpayer money going to charter schools in trouble.

State school board chairman Bill Cobey and House Minority Leader Rep. Larry Hall are reacting to a report last week by state auditors that found a collection of questionable financial choices preceded the sudden shutdown of Kinston Charter Academy in September 2013. Three Charlotte charters have closed since April before finishing their first year.

Ten of the state's nearly 150 charter schools are on a financial watch list kept by state monitors.

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The state auditor has instructed the State Bureau of Investigation and the district attorney of Lenoir County to investigate the now closed Kinston Charter Academy after finding several issues with the financial management of the school.

Kinston Charter Academy shut its doors on September 6, 2013 after surrendering its charter to the state following years of financial issues. The school was cited multiple times between 2008 and 2013 by the Department of Public Instruction for financial deficiencies.

The school was led by Ozie Hall, listed as the CEO and principal. His wife, Demyra McDonald-Hall was the dean of students and chairman of the board of directors.

The report released today says the school overstated attendance estimates, which allowed them to receive $300,000 more from the state than the school should have received. Additionally, the audit found the school hired the unqualified relatives of Hall, paying them $92,500 in the final year of the school's operation. The report also questioned Hall's experience, saying he did not have sufficient experience to run the school as required by the charter.

Other financial questions included payments of $11,000 to Hall and his wife, despite owing more than $370,000 in payroll obligations. These expenses included vacation leave payouts to the couple, even though the school did not have the money to pay teachers and other administrators.

Furthermore, the audit found dropping attendance, private donations that never came through and high operating costs contributed to the insolvency of the school.

Kinston Charter Academy was founded in 2004, at a time when the state of North Carolina limited the number of charter schools allowed in the state to 100. The report says the school had financial trouble from the beginning and nearly closed its doors in 2007. Documentation from that year shows the school operating at a deficit of $354,292. Hall told investigators five of the eight board members took out personal loans to keep the school open. The citations for financial deficiencies began in 2008 and continued until 2013. On August 13, 2013, the state notified Kinston Charter Academy it would revoke its charter. The school voluntarily surrendered it less than a month later, and the school closed for good on September 6, 2013.

One month after the school closed, Hall said he was considering suing the state for money to pay the teachers. Hall said the closure of the school put him in a position where he could not pay the staff.

The audit also says the state continued to fund Kinston Charter Academy despite its multiple financial problems. The total amount of state appropriations added up to more than $666,000 in July 2013.

The school filed a response, which says the audit is full of "false information, misleading statements and embellishments." According to the Kinston Charter Academy, one of the key factors in the closing of the school was the cash flow problems created by the state changing its policy allowing charter schools to draw funds from their State funds allotment as needed outside the generally published schedule. According to the response, the school had more than $600,000 in state funds that it was not allowed to use to pay its expenses.

What happened at the Kinston Charter Academy could change the way other charter schools are funded and monitored. The state auditor recommends the State Board of Education establish new guidelines about the frequency and significance of financial performance and compliance issues before a school charter is revoked.

Civil action against the Halls to reclaim the $11,000 they received from the school is possible.

Wednesday afternoon the SBI said they had not yet been asked to conduct an investigation into the closed school.

Meanwhile, the State Board of Education says the Kinston Charter case shows the need for changes in Raleigh. "We plan to seek legislation this year to strengthen our authority in situations where a charter school is on probation for financial difficulties," Cobey said. "This would allow us to quickly cease expenditures if necessary. We also intend to seek legal counsel immediately regarding civil action related to the mismanagement of the 2013-14 initial allotment of state funds."